1. EU SUPPORT TO LOCAL ECONOMIC DEVELOPMENT IN BOSNIA AND HERZEGOVINA

1.1       Background

As a participatory process, local economic development (LED) "encourages and facilitates partnership between the local stakeholders, enabling the joint design and implementation of strategies, mainly based on the competitive use of the local resources“(OECD). Its objective is to promote high growth in a local community with the final aim of creating jobs and sustainable economic activities. Due to the fact that LED activities impact on the economic viability of the surrounding region not just of the locality, LED initiatives must be coordinated with economic initiatives and economic development actors operating at the regional and national levels

EU policy background and its relevance for BiH

Small and Medium Sized Enterprises (SMEs) are the backbone of the European economy. They generated 2/3 of private sector employment and contributed about 85% to the new job creation over the past five years. To overcome the current economic downturn, the EU has placed emphasis on the policies which promote entrepreneurship and create better business environment for small businesses to help them realize their growth potential.

In that respect, the European Union has set out a vision for development in the 21st century, in the Europe 2020 Strategy, which puts forward three mutually reinforcing priorities:

– Smart growth: developing an economy based on knowledge and innovation.

– Sustainable growth: promoting a more resource efficient, greener and more competitive economy.

– Inclusive growth: fostering a high-employment economy delivering social and territorial cohesion.

In essence, Europe 2020 Strategy aims to boost growth and jobs by maintaining and supporting a strong, diversified and competitive industrial base in Europe, while becoming more resource efficient.

Small Business Act (SBA), as the main EU policy document related to SME development, states that “managing the transition towards a knowledge-based economy is the key challenge for the EU today. Success will ensure a competitive and dynamic economy with more and better jobs and a higher level of social cohesion.". In particular, the SBA principles VII and VIII emphasize the need to help SMEs to use benefit from the opportunities offered by the Single Market and need for the upgrading skills in SMEs.

As for Bosnia and Herzegovina on its pace in the European integration process, the European Commission 2012 Progress Report (PR) notes that little progress was made in the area of industry and SMEs. It further points at the fact that the country lacks a comprehensive industrial policy and an updated framework for SME policy. It concludes that coordination between the Entities remains the key issue for promoting enterprise development and that further improvements in the business environment are essential for the expansion of business and trade.

Stabilization and Association Agreement (SAA) also call for the creation of a favourable climate for private investments, essential to economic and industrial revitalisation of Bosnia and Herzegovina. The SAA further promotes strengthening of regional and local development cooperation, to contribute to economic development and reduced regional imbalances. More specifically, the SAA places an emphasis on the improved cooperation for small and medium enterprises (SMEs) and private sector development based on relevant EU policies, in particular the European Charter for Small Enterprises and the Small Business Act. At the sector level, it focuses on industrial development and tourism by promoting the transfer of know-how to support improved management and development of business environment. It provides strong potential for cross-border cooperation and trans-national initiatives at regional level.

BiH policy background

BiH related development strategies and action plans at all appropriate levels point at need for strengthening macroeconomic stability, sustainable development, competitiveness and employment, EU integration and social inclusion as the overall strategic objectives. Amongst those, specifically singled out are SME development and job creation as well as improving the conditions for operating businesses. There is no current SME Development strategy at State-level. A draft SME Strategy was prepared with EU assistance in 2011, and it provides a limited framework for alignment with EU Small Business Act (SBA).

At the Entity level, the Republika Srpska (RS) Strategy for SME and Entrepreneurship Development 2011-2013 identifies one of priority measures as to build a program of the municipal and inter-municipal institutional support for entrepreneurship and SMEs, in order to achieve the following objectives:

- support for the development of entrepreneurship and SMEs through appropriate organizational structure for local development, tailored to its capabilities and needs, and through concrete financial support;

- educate local teams for the preparation of local development projects;

- establish inter-municipal development tools to strengthen development;

- advisory assistance to local authorities in identifying and establishing strategic priorities for development of entrepreneurship.

As for the Federation of BiH (FBiH), SME development is covered by the FBiH Strategy of Economic Development and the document “Development of small and medium enterprises in the FBiH". The main objectives of the document are to strengthen competitiveness of SMEs, create jobs and enable SMEs to become source of innovations in the future.

Similar SME sector priorities of Brcko District (BD) have been defined in their Development Strategy.  In addition, there is significant number of other SME sector related plans and strategies that are prepared and/or approved at the State, the Entities’ and local (municipal, cantonal) levels in BiH

The absence of a high level policy for inclusive and integrated local economic development with other key socio-economic policies in addition to the complex governmental framework resulted in insufficiently developed or coordinated practices relevant for support to entrepreneurship at local level. However, over the last decade different local economic development actors have emerged including regional and local development agencies, chambers, business associations and clusters. The majority of these local economic development actors require further strengthening and support to become sustainable.

Municipalities and local development agencies substantially contribute to the promotion of employment, innovation, education, and social inclusion. Most of BiH municipalities have their local economic development strategies (and or local economic action plan) for the current period, often developed in cooperation and with the assistance of international donor organisations. However, the quality of these strategies is not standardised across the country and municipalities are lacking skilled and experienced staff for the preparation of the quality local development projects. They also have central role to play not only in the support of those small businesses that operate in local markets, but also to facilitate the improved performance of growing businesses which are striving to enter wider, international markets. Similar problems are encountered by most underdeveloped municipalities in BiH, such as lack of communal infrastructure, lack of access to capital markets, ageing or under-skilled population etc. and cooperation between local authorities in BiH is still patchy. Regional Development Agencies together with the RS SME Agency, Local Development agencies and the Association of Cities and Municipalities of FBiH and the Association of Local Authorities of Republika Srpska provide one of the few environments for fertilising development cooperation between municipalities. There are ongoing activities in Brcko District on establishing their Development Agency.  The recently finalised IPA 2007 "EU Support to regional, SME and local economic development" provided direct assistance to the local actors in development of projects that will create partnerships between the local organisations to support enabling environment for the locally operating SMEs. Overall, the local economic development in BIH is still in an embryonic state.

The proposed intervention under this Call for Proposals (CfP) will contribute to addressing the above mentioned strategic objectives at all appropriate BiH levels by focusing on the co-operation at the local level to boost competitiveness and improve business environment for locally operating SMEs. The CfP will focus on local business support services, promotion of innovations and new technologies, product development and marketing as well as availability of a better qualified workforce. The above measures will be implemented through partnerships between local administrations, business support service providers (development agencies, chambers of commerce, innovation and research centres, employment bureaus etc.) and entrepreneurs. As such, the CfP is expected to have twofold effects: 1) strengthening of public-private initiatives 2) promotion of better environment for businesses.

The range of support should include provision of facilities and business infrastructure for small and medium businesses and entrepreneurs and support for improved innovation and competitiveness in the SME sector. In addition, it will assist development of partnerships between local organisations and the financial institutions (banks, etc.) for provision of financial instruments which will contribute to facilitating investments in SMEs.

In conclusion, as local economic development activities impact on the economic viability of the surrounding region not just of the locality, Local Economic Development (LED) initiatives must be coordinated with economic initiatives and economic development actors operating at all appropriate levels.

1.2 Objectives of the programme and priority issues

The global objective of this Call for Proposals is: to stimulate economic growth and employment generation.

The specific objective (s) of this Call for Proposals are:

1.Support the implementation of measures at the local level which will contribute to improvements in the operational framework for the SME sector.

2.Support improvements in innovation and competitiveness of local actors in partnerships.

3.Contribute to improvements in the business environment through better infrastructure and services.

These objectives will be achieved through initiatives undertaken at the local level consistent with the overall aim of improving the economic stability in BiH.

1.3 Financial allocation provided by the contracting authority

The overall indicative amount made available under this Call for Proposals is € 3 000 000. The Contracting Authority reserves the right not to award all available funds.

Size of grants

Any grant requested under this Call for Proposals must fall between the following minimum and maximum amounts:

- Minimum amount of EU contribution per action:                  EUR 350 000

- Maximum amount of EU contribution per action:                 EUR 500 000  

A grant may not be for less than 50 % of the total eligible costs of the action. 

In addition, no grant may exceed 85 % of the total eligible costs of the action (see also section 2.1.4).

The balance (i.e. the difference between the total cost of the action and the amount requested from the Contracting Authority) must be financed from sources other than the European Union Budget or the European Development Fund.

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